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Junk Bond Buyers Fear Borrowers Are Keeping Them in the Dark

Junk Bond Buyers Fear Borrowers Are Keeping Them in the Dark

(Bloomberg) -- Canceled conference calls and delayed financial disclosures by junk-rated companies are straining relations with creditors desperate for information on how badly the coronavirus has hit their borrowers’ businesses.

Vending machine firm Selecta and takeaway chain Telepizza are among companies that recently scrapped expected calls where management take questions from bondholders. Paper maker Lecta postponed its full-year earnings conference call last week on the day it was due to be held.

Other borrowers, such as Amsterdam-based retailer Hema, have pushed back results announcements. While companies may not be obligated to report on schedule, the lack of information is unsettling some investors.

“Responsible management should be holding investor calls right now,” said Senan Kiran, senior credit research analyst at Muzinich & Co. in London which oversees $32 billion in assets including high-yield debt. “We need the information now to assess the situation and to make investment decisions.”

A spokeswoman for Selecta declined to comment while representatives for Telepizza and Lecta didn’t respond to requests for comment. A Hema spokeswoman said: “we disagree with the assumption that we are not transparent.”

Disclosure has long been a bugbear of investors in European high-yield debt because many of the borrowers are private and are only obliged to follow the reporting requirements laid out in their bond documents. They are often not required to hold conference calls and it’s not unheard of for companies to skip them.

But a risk for companies that cancel investor calls is that bondholders may assume there’s bad news they don’t want to reveal.

Junk Bond Buyers Fear Borrowers Are Keeping Them in the Dark

A group of lenders in the leveraged finance market said last month that companies should be ready to explain how the crisis is affecting operations, outline their plans to take on more debt and provide clarity on covenants. The European Leveraged Finance Association, which authored the guidelines, represents more than 30 institutional fixed income managers.

Read more: Europe’s Junk Debt Investors Push for Answers Amid Covid Threat

To be sure, lockdowns mean that many companies are struggling with unprecedented pressure on their businesses. Even publicly-listed companies have been granted some slack, with the Financial Conduct Authority suggesting they delay earnings to assess a rapidly changing environment.

Selecta, owned by private-equity firm KKR & Co., didn’t hold a conference call with investors when it reported earnings last week, saying that management was focusing its full attention on managing its operations. The vending machine operator said it fully drew down its liquidity line and revolving credit facility. The bonds slumped 24 cents to a record low 32 cents that day. They have since rebounded a bit to trade at 37 cents.

“The fact management didn’t hold a call likely contributed to the bond decline,” said Joan Sehim, an analyst at Spread Research in Lyon, France. “We fear the lack of communication from management hides a horrific operational situation.”

Other firms have delayed encounters with bondholders. Telepizza, also owned by KKR, postponed its conference call with investors at the end of March and delayed publishing results until the first half of April. The company has yet to hold the call.

Meanwhile, Hema told bondholders in March that answering questions from investors was not a priority and also difficult to manage given its other concerns.

The company postponed an investor day and publication of its full-year results to the end of May. On April 17, Hema did publish an update on the impact of the pandemic, saying store sales in the Netherlands were improving and online sales had tripled.

It’s generally a negative for investors when companies cancel earnings calls, said George Curtis, a credit analyst at TwentyFour Asset Management in London with about 16 billion pounds ($20 billion) of assets including high-yield debt.

“It may be a sign that a company is struggling,” he said.

©2020 Bloomberg L.P.